Archer Aviation (ACHR +8.82%) is an electric vertical takeoff and landing (eVTOL) start-up with a roughly $6 billion backlog, a lineup of big-name partners like Stellantis (STLA +4.66%), and $1.6 billion in cash and short-term investments at the end of the third quarter.
On paper, those figures make its current share price (which has been below $10 since the end of October) look out of sync with the progress Archer is making toward commercializing its air taxi idea.
NYSE: ACHR
Key Data Points
At the same time, the stock's double-digit slide this year clearly reflects concerns over the company's cash burn and whether the eVTOL industry will truly take off, as optimists expect.
Is now the time to jump on board with Archer while its share price is still below $10?
The big idea driving the stock
Archer is one of several eVTOL companies aiming to revolutionize urban transportation. Yet it is one of only a few aside from Joby Aviation (JOBY +5.60%) that are close to making their dream of flying taxis a reality.
The company's flagship is Midnight, an electric aircraft that can hold four passengers (plus a pilot) and travel up to 100 miles before recharging. The aircraft flies on a 12-tilt-six configuration, meaning six of its propellers can tilt for forward flight, while the other six are fixed and function only for vertical lift.
Image source: Stellantis.
This design lets the craft lift up like a helicopter but cruise like an airplane, which makes it more efficient and quieter than a traditional chopper.
Archer's goal is to operate these craft as air taxis. Ultimately, it wants to fly paying passengers on short routes, such as between airports and city centers, as an alternative to ground transportation. Additionally, it wants to sell aircraft to commercial customers, like airlines, and to the government for defense purposes.
The one thing holding Archer's business back
As noted above, Archer has strategic partnerships with some big industrial names, including United Airlines (UAL +3.93%) and Stellantis. It also has plans to launch air taxi operations in several countries outside the U.S., including the United Arab Emirates, India, and South Korea.
Within the U.S., however, the company's future isn't exactly crystal clear.
It still does not have an Federal Aviation Administration (FAA) certificate to fly paying passengers in its Midnight craft. Additionally, it lacks a production certificate, which would let it scale up production of Midnight.
But Archer isn't the only eVTOL company that lacks these certifications. Indeed, none have them. What's concerning for Archer investors, however, is that Joby Aviation, its main rival, appears to be closer to obtaining them.
One potential change that could rebalance the scales is the FAA's eVTOL Integration Pilot Program, which began in September. This program is intended to accelerate safe eVTOL operation in the U.S.
If this program can fast-track Archer's certification process, today's uncertainty could end up looking less like a red flag and more like an entry point into a solid growth stock.
The risk between here and "rich"
The biggest challenge right now for Archer is time and money. As a pre-revenue company, Archer has to rely on its cash position to continue operating and funding research and development. At the end of its latest quarter, it had about $1.6 billion in cash and equivalents. But with an annual cash burn rate of about $400 million, the clock is already ticking.
That said, some analysts project an uptick in revenue over the next two years. Indeed, one estimate shows Archer generating about $306 million in 2027. This, of course, depends on Archer obtaining certification and scaling up its business, which are still not certainties.
ACHR Revenue Estimates for Current Fiscal Year data by YCharts
My view is that Archer still belongs in the speculative corner of a portfolio. The ingredients for an eVTOL winner are here: a multibillion-dollar backlog, blue chip partners, and plans to enter international markets. At the same time, Archer is designing something for a market that doesn't exist.
So could Archer make some investors rich over time? Certainly. For investors who decide to buy, however, it would probably make sense to size positions carefully and keep a long time horizon, as this stock could get more volatile in the near term.
